There’s no question which news event ruled the day. From the get go, it was S&P’s announcement that it is cutting its outlook on U.S. government debt to negative, which could threaten its pristine AAA rating.
The major market ETFs dropped like a rock, but afternoon bargain hunting limited losses somewhat. Good thing there wasn’t another negative news report, or this could have been a truly ugly day.
Gold was the beneficiary and hit a new closing high of $1,492.90, while sneaking up on the $1,500 level. Surprisingly, bonds rallied as interest rates sank while the dollar rose. The combination of higher gold and bond prices served us well, as our core holding PRPFX slipped only by -0.23% vs. the S&P 500’s -1.10%.
S&P believes that there is “material risk” that Congress and the White House won’t be able to agree on budget challenges until after the 2012 elections.
I agree with their assessment and have stood in disbelief many times as even puny deficit reduction negotiations of maybe $30 billion dollars were celebrated as a chest pounding event. That’s like getting all excited when a 400 pound man loses 2 pounds—who cares.
In any event, the S&P 500 broke below its 1,300 level but, thanks to late day buying, managed to close back above it. However, its 50-day moving average was violated as the index slipped -1.06% below it.
None of our sell stops were triggered, and we will have to wait and see if this was a one day negative reaction or the beginning of further market deterioration. As has been my theme for the last year or so, known and a host of unknown uncertainties are likely to combine over time and bring this bull market to its knees. The timing of it is still a wild guess.
Above chart courtesy of MarketWatch.comContact Ulli